There are many mistakes which cause people to lose money in equities but here are some important and most common ones :
1. Lack of knowledge : Most people don't have sufficient knowledge or should I say basic knowledge about the market. They trade because either they have been advised by someone or because they have done their own incomplete research. Most common example of own research which I found is that often people feel that price of a particular stock has fallen so much from its high that now its like a gold mine. People invest heavily in these stocks without finding out why the stock price had fallen and the final outcome is a disaster. Stock market never forgives and has no emotions.
2. Overconfidence : It is not necessary that once your research has brought you gains then same would happen again. People who are new in this field often get overconfident after tasting success once. They increase their investment greatly without calculating personal risk appetite. Loss occured under such circumstances is huge and normally dries their savings.
3. Running after a stock : I personally know so many guys ho have lost money because they were chasing a stock. A perfect example is stock of Ackruti city in the year 2008/2009. This stock was running upside even when whole market was heading towards a new low. It was at 600 in Dec 08 and in March 09 it was at 2350. You must be thinking what if i had bought this stock. Well don't worry if you did not buy this stock because those who did not sell it had to see a price of 330 in next month. Most of the people could not get out of this stock as it was hitting lower circuit day after day. Imagine what if you had bought it at 1000 when the stock was going up and was waiting for it to cross 2500 mark. Even if you had bought it at 600 when the stock had already fallen from its high you would have made huge loss. So running after a stock when its going down should also be avoided untill you have done proper research on the stock.
4. Portfolio not diversified : If you have invested all your money in a single stock or sector or a mutual fund then you are at a great risk of losing money. If your stock goes down due to any reason or the sector in which you are heavily invested then you will be have no other stock/sector to provide much needed support. Often people don't understand how to diversify and importance of risk management and they invest in sectors or stocks which are not suitable to them.
5. Fear and greed : Fear and greed are two forces that drive the market. Fear will make you sell at a loss or at a lesser profit and greed will make you hold it a little longer till the stock tumbles or will make you invest heavily in a particular company. So keep your emotions away when you trade.
6. Over-indulgence : Over-indulgence must be avoided. There are too many experts in the market, it is advisable to think before you act. Advices keep on changing daily. Changing your portfolio every now and then on the basis of these advices is not at all recommended. Many brokers offer a lot of advice. The reason is that they earn on every stock, when bought and also when sold. More you trade more they earn.
7. Futures and options : Trading in futures and options without proper knowledge can sometimes be your last trade. Every year thousands of people exit stock market forever after suffering heavy loss by trading in futures and options. It is very very important that you understand every aspect of it before trying. It is widely known that many rich men became poor overnight because they were trading in futures and not in cash. Its actually better to go at your broker's office and learn from other's mistakes who trade in futures and options. Do not trade in futures and options if you are new to the market. In the beginning it appears that you can make a good fortune out of it. You might also earn when you start. But if you don't have proper understanding about trading in futures and options then its alsmost certain that someday you will end up losing money from your pocket. My friend once spoke very funny but sensible words " If you trade in Futures you will ruin your future".
8. Investing by taking loan : NEVER ever take a loan and invest your money in the stock market. An experienced person will never advise you of that.
9. Following others advice : A new trader thinks that all he needs to do is switch on the television and just note down some expert advice on the stocks. If it was so easy then I would'nt be writing this article and you would'nt be continuing your job. Some people take advice from anybody, these may be friends, relatives or even an unknown person. They don't seem to understand that the origin of some of these advices are just a rumour which passes from one person to another.
10. Non-stop buying : Some people just buy stocks no matter what the situation is. If the stock price falls by 15 % they buy. Then whent it falls by 20 % they again buy and regularly do it till the stock has fallen considerably. Later they notice only one trend and that is downwards. These people either get stuck in that stock for a very long time or book heavy losses. So it better to find out the reason of decline instead of rushing to buy.
1. Lack of knowledge : Most people don't have sufficient knowledge or should I say basic knowledge about the market. They trade because either they have been advised by someone or because they have done their own incomplete research. Most common example of own research which I found is that often people feel that price of a particular stock has fallen so much from its high that now its like a gold mine. People invest heavily in these stocks without finding out why the stock price had fallen and the final outcome is a disaster. Stock market never forgives and has no emotions.
2. Overconfidence : It is not necessary that once your research has brought you gains then same would happen again. People who are new in this field often get overconfident after tasting success once. They increase their investment greatly without calculating personal risk appetite. Loss occured under such circumstances is huge and normally dries their savings.
3. Running after a stock : I personally know so many guys ho have lost money because they were chasing a stock. A perfect example is stock of Ackruti city in the year 2008/2009. This stock was running upside even when whole market was heading towards a new low. It was at 600 in Dec 08 and in March 09 it was at 2350. You must be thinking what if i had bought this stock. Well don't worry if you did not buy this stock because those who did not sell it had to see a price of 330 in next month. Most of the people could not get out of this stock as it was hitting lower circuit day after day. Imagine what if you had bought it at 1000 when the stock was going up and was waiting for it to cross 2500 mark. Even if you had bought it at 600 when the stock had already fallen from its high you would have made huge loss. So running after a stock when its going down should also be avoided untill you have done proper research on the stock.
4. Portfolio not diversified : If you have invested all your money in a single stock or sector or a mutual fund then you are at a great risk of losing money. If your stock goes down due to any reason or the sector in which you are heavily invested then you will be have no other stock/sector to provide much needed support. Often people don't understand how to diversify and importance of risk management and they invest in sectors or stocks which are not suitable to them.
5. Fear and greed : Fear and greed are two forces that drive the market. Fear will make you sell at a loss or at a lesser profit and greed will make you hold it a little longer till the stock tumbles or will make you invest heavily in a particular company. So keep your emotions away when you trade.
6. Over-indulgence : Over-indulgence must be avoided. There are too many experts in the market, it is advisable to think before you act. Advices keep on changing daily. Changing your portfolio every now and then on the basis of these advices is not at all recommended. Many brokers offer a lot of advice. The reason is that they earn on every stock, when bought and also when sold. More you trade more they earn.
7. Futures and options : Trading in futures and options without proper knowledge can sometimes be your last trade. Every year thousands of people exit stock market forever after suffering heavy loss by trading in futures and options. It is very very important that you understand every aspect of it before trying. It is widely known that many rich men became poor overnight because they were trading in futures and not in cash. Its actually better to go at your broker's office and learn from other's mistakes who trade in futures and options. Do not trade in futures and options if you are new to the market. In the beginning it appears that you can make a good fortune out of it. You might also earn when you start. But if you don't have proper understanding about trading in futures and options then its alsmost certain that someday you will end up losing money from your pocket. My friend once spoke very funny but sensible words " If you trade in Futures you will ruin your future".
8. Investing by taking loan : NEVER ever take a loan and invest your money in the stock market. An experienced person will never advise you of that.
9. Following others advice : A new trader thinks that all he needs to do is switch on the television and just note down some expert advice on the stocks. If it was so easy then I would'nt be writing this article and you would'nt be continuing your job. Some people take advice from anybody, these may be friends, relatives or even an unknown person. They don't seem to understand that the origin of some of these advices are just a rumour which passes from one person to another.
10. Non-stop buying : Some people just buy stocks no matter what the situation is. If the stock price falls by 15 % they buy. Then whent it falls by 20 % they again buy and regularly do it till the stock has fallen considerably. Later they notice only one trend and that is downwards. These people either get stuck in that stock for a very long time or book heavy losses. So it better to find out the reason of decline instead of rushing to buy.
No comments:
Post a Comment